Q4 2021 Nucor Corp Earnings Call
Please standby.
Good day, everyone and welcome to the Nucor Corporation fourth quarter of 2021 earnings call.
As a reminder, today's call is being recorded.
We will conduct a question and answer session and instructions will come at that time.
Certain statements made during this conference call will be forward looking statements that involve risks and uncertainties.
Words, we expect believe anticipate and variations of such words and similar expressions are intended to identify those forward looking statements, which are based on management's current expectations and information that is currently available.
Although nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy.
More information about the risks and uncertainties relating to these forward looking statements may be found in Nucor's latest 10-K, and subsequently filed 10, Qs which are available on the S E CS and Nucor's website.
The forward looking statements made in this conference call.
Speak only as of as of this stage and Nucor does not assume any obligation to update them either as a result of new information future events or otherwise for.
For opening remarks, and introductions I would like to turn the call over to Mr. Leon Topalian.
President and Chief Executive Officer of Nucor Corporation. Please go ahead Sir.
Good afternoon, and welcome to our 2021 fourth quarter and full year's earnings call. Joining me on the call today are several members of Nucor's executive team, including.
Jim Frias, our Chief Financial Officer.
Dave Some hausky Chief operating officer, Al Behr responsible for plate and structural products Doug.
Doug Jellison responsible for raw materials and logistics, Greg Murphy responsible for business services, and our general counsel, Dan need him responsible for bar rebar fabrication and engineered bar products <unk>.
<unk> query responsible for sheet and tubular products Mary Emily slate responsible for commercial strategy.
And Chad you to Mark responsible for fabricated construction products.
By so many measures 2021 was an extraordinary year for Nucor, our team delivered incredible financial and operating results over the course of the year, while working safely and responsibly.
Every single day or nearly 29000 team members remained focused on our company's mission to grow our core steelmaking capabilities, while expanding our presence into related businesses that fit with our culture and leverage our strengths.
For our team the most important value is safety.
So I'm incredibly pleased to report that 2021 was the safest year in our history.
Becoming the world's safest steel company is a lofty goal and our team has now achieved back to back record years in safety.
Nucor has 16 divisions that weren't zero recordable injuries in 2021, and I look forward to the day when our entire company achieved that same goal.
I want to thank each of our Nucor team members for your daily commitment to safety looking out for one another and I look forward to an even safer year in 2022.
Turning to our fourth quarter results earnings per share were $7 97.
Exceeding our guidance range of 765 to 775. This represents another new quarterly record for our company.
Looking at 2021 as a whole we set several other financial records.
Net income for 2021 was $6 8 billion and full year earnings per share was $23 16, which were both a notable increases over the prior records. We set in 2018 with $2 $4 billion of net income and an EPS of $7 42.
Our record financial performance is the result of years of work reinvesting to strategically position and grow our portfolio of capabilities across the steel value chain.
We are leveraging our competitive advantage too aggressively and opportunistically pursue value enhancing long term growth.
Along the way, we are delivering a differentiated value proposition to our customers and expanding our relationships with them.
By executing operationally across our business lines and in parallel investing in nucor's future. We are generating attractive returns for our shareholders and positively impacting our local communities and the process. We can offer nucor teammates secure employment and competitive compensation and benefits as well.
Well as the opportunities to further their professional growth and development.
Our talented dedicated team members are nucor's greatest value creators.
Reflecting this for 2021, our profit sharing totaled about $850 million.
Adding this amount to teammate profit sharing over the course of the last five decades nucor's allocated a total of about $3 8 billion and profit sharing to our team members.
Most profit sharing payments are contributed directly to teammates retirement savings accounts and as a result, we believe that nucor teammates are far more prepared for retirement than the average American.
Of course, we're also mindful of our responsibility to shareholders. We're proud to have been able to provide cash returns via dividends and share repurchases totaling about $3 8 billion in 2021 and in December to increase our regular quarterly dividend for the 49th year in a row this year by 23% to.
Our rate of 50 per quarter.
Our quarterly dividend is now about 32% higher than it was in 2018.
We reduced our share count by more than 11% in 2021, even as we funded capital expenditures and acquisitions totaling approximately $3 billion to drive the next chapter of our growth story and as Jim will share, we remain very well capitalized enabled or pursue our objectives.
And speaking of those as.
As we move into 2022, we are not letting up when it comes to executing our strategy to grow our value added product portfolio and expand into new product markets and geographic regions.
Two weeks ago, we announced that Mason County, West, Virginia will be the location of our new state of the art 3 million ton sheet mill.
The location along the Ohio River provides nucor with important transportation and logistics advantages and serving the country's two largest sheet steel consuming regions, the Midwest and northeast to areas, where nucor's currently under represented.
Once operational our West Virginia Mill will have some of the most advanced capabilities in one of the lowest carbon footprints of any sheet mill in the world.
We are very excited to begin work with the local community in Mason County on this transformational project that will create substantial long term value for all nucor shareholders.
On December 16th our Nucor steel, Arkansas sheet mill produced its first prime coil from its new generation three flexible galvanizing line.
The new Galvanizing line combined with Hikma is highly successful specialty cold Rolling mill, that's been in operation for more than two years.
Uniquely positions our company among North American Eas steelmakers to provide the high strength lightweight steels that are increasingly in demand.
These capabilities represent important competitive advantages for our company exemplifying nucor's ability to meet the needs of our customers for high strength steels, congratulations to the entire Nucor, Arkansas team.
Another sheet Mill project Nucor steel Gallatin is heartburn modernization and expansion is beginning to start up in the current quarter. This project gives gallatin, new mill thicker slab casting and wider coil capabilities expanding our product portfolio into markets currently served by higher cost competitors.
<unk> team members continue to impress with our ability to safely construct the expansion project within the environment of an operating mill and we look forward to its continued ramp up.
We are also expanding our presence in the Western U S. In December we announced an agreement to acquire a majority ownership stake of 51% in California steel industries for about $400 million.
CSI is a flat rolled converter with annual capacity to produce more than 2 million tonnes of finished steel and steel products. This.
This investment which is expected to close shortly expands our geographic reach in the sheet market grows our portfolio of value added sheet products and enables us to supply nucor's downstream businesses in the region, including Virco and the recently acquired Hannibal industries. We are very excited to partner here with <unk> steel.
Corporation on a second joint venture.
Switching to the plate market, our Brandenburg, Kentucky Greenfield mill is on track to begin enrolling its first steel plate product in the fourth quarter of this year.
With the capability to manufacture nearly all of the different types of plate products consumed in the United States Brandenburg will position Nucor as the supplier of choice in the domestic <unk> market, which includes applications in offshore wind heavy equipment construction and military.
Finally, I would also like to mention a new project in our bar Mill group in December we announced our plan to build a new rebar micro mill with annual capacity of 430000 tons in the South Atlantic region.
This will be Nucor's third rebar micro mill, joining micro mills in Missouri in Florida that began operations in 2020.
We are currently evaluating potential sites and are excited about this opportunity to grow our profitable leadership position in rebar a core business for nucor throughout the last 50 years.
I'm extremely proud of all of our teammates who are working so hard on all of these projects as they are prime examples of Nucor's continued execution of our mission to grow the core expand beyond and live our culture.
And before I leave this topic I just want to note that we believe we are seeing an acceleration of a transformation in our industry that has been underway for decades.
Forces driving economic efficiency and lower emissions in steelmaking.
North American producer is better positioned than nucor to continue leading in these areas.
With our teams disciplined focus on execution and nucor's financial and operational strengths, we expect to realize very attractive returns on our investments.
We're very proud that nucor's help make the United States the cleanest place in the world to make steel.
The Green economy is being built on steel and the steel. It's built on matters. We're also capitalizing on the opportunities supply the sustainable steel that is building our 20 <unk> century economy earlier. This month, we shipped our very first coil of iconic to general Motors. After having just launched this new line of Ste.
Yield this past October our iconic offering represents the world's first ever net zero carbon steel available at scale.
We look forward to continuing to offer kotick to more customers and of course, lower greenhouse gas emission steel across our product portfolio.
Nucor will continue to be a key part of our modern economy by supplying the most advanced and sustainable steel products needed to rebuild America's infrastructure.
We are pleased that our leaders came together in the fourth quarter to pass historic bipartisan infrastructure legislation that will help advance and modernize U S infrastructure and strengthen the health of our economy by creating opportunities for American workers.
With approximately half of nucor's products going into the construction market, we stand ready to help our country meet its infrastructure needs.
We also continue to work with the administration and members of Congress to enforce our trade laws. So that our market is free from the distortion caused by unfairly traded imports and that as we reinvest in our infrastructure. We do so with steel produced in America, the highest quality cleanest steel possible.
And before I turn the call over to Jim I'd like to congratulate the entire nucor team on reaching new heights to achieve our safest and most profitable year in company's history.
You have much to be proud of and on behalf of myself and our entire executive team. Thank you.
Team, let's keep up our focus in 2022 and of course for Nucor that begins with a value of safety. We have much to look forward to as we progress throughout this new year.
Now Jim will provide more details about our fourth quarter and full year performance Jim.
Thanks Leon.
As we have mentioned fourth quarter of 2021 earnings of $7 97 per diluted share established a new quarterly record.
Eclipsing the prior record of $7 28 per share established in last year's third quarter.
Fourth quarter earnings also exceeded our guidance range of $7 65.
To $7 75 per diluted share.
Than expected results for the month of December were achieved across a broad group of businesses.
Record full year net income of $6 8 billion was.
Was driven by new course diverse portfolio of products and capabilities.
Profitability Records were set by numerous businesses, including Nucor's sheet Mills, rebar and merchant Bar Mills engineered bar Mills plate mills structural mills joist and deck.
Tubular products cold finished bars and fasteners.
<unk> product breadth continues to be a powerful driver of value creation through the cycle for both our customers and shareholders.
While our 2021 performance unquestionably benefited from exceptionally strong steel industry up cycle.
Nucor's results were also fueled by our team's focus and commitment to safely meeting our customers' needs.
Disciplined execution of our growth strategy over the years is a significant factor underlying our success. For example, five major greenfield projects completed commissioning and startup over the 2019 through 2020 time period. They are the rolling mill modernization at our Ohio.
Rebar mill the.
The Hot band Galvanizing line at our Kentucky sheet Mill.
The specialty cold Rolling mill at our Arkansas sheet mill, the rebar micro mill in Missouri, and the rebar micro mill in Florida.
These projects represent an aggregate capital investment of just over $1 billion.
For the full year of 2021, they generated EBITDA totaling $674 million.
Our teammates at these facilities have done stellar work executing across the board on safety product quality and financial performance.
Cumulative EBITDA already exceeds the investment outlays for the Gallatin Galvanizing line and the Ohio Rebar mill modernization.
The cumulative EBITDA generated by the Hickman specialty Cold mill is nearing that project capital investment first year EBITDA for the Missouri, and Florida Rebar Micro mills are multiples of what we originally projected in our project return budgets.
Two more major capital projects totaling just over $1 billion have entered startup in late 2021 and early 2022.
These investments meaningfully enhance nucor's sheet product capabilities.
The expansion and modernization of the Gallatin sheet mill and the generation III flexible galvanizing line at the Hickman sheet mill.
We look forward to introducing our new capabilities to strategic customers as the year progresses, and we are excited about the returns expected to be generated for our shareholders as these projects ramp up.
While 2021, clearly revealed the earnings and cash generation power of Nucor's businesses. It also provided an opportunity for us to fully demonstrate nucor's balanced capital allocation framework.
As most of you know we are committed to first investing for profitable growth, while maintaining our strong investment grade credit rating and returning capital to our shareholders through cash dividends and share repurchases a minimum of 40% of net income over time.
When we judge that strong free cash flow is causing us to become over capitalized we will typically distribute more than 40% of our net income to shareholders.
Capital returns have averaged 58% of net income over the five year period ending in 2021.
And there were 55% of Nucor's net income for the year of 2021.
2021 capital returns consisted of dividends of $483 million and share repurchases of just under $3 3 billion.
The share repurchases totaled more than $33 8 million shares and average cost of about $97 per share.
These returns were a corresponded by our strong cash provided by operating activities.
Also a new record of $6 2 billion.
Other significant uses of cash during the year, where capital spending of $1 6 billion.
Expansion of working capital, mainly receivables and inventory net of payables totaling approximately $3 3 billion.
And acquisitions of about $1 4 billion.
We remain well capitalized with excellent liquidity.
Our year end gross debt as a percentage of total capital was approximately 28%.
Net debt was about 14% of total capital.
Our cash short term investments and restricted cash holdings totaled about $2 8 billion at year end.
Nucor's liquidity also includes our Undrawn $1 75 billion.
Unsecured revolving credit facility.
Remember, we increased the capacity by $250 million and extended the maturity date to November of 2026.
Given the state of our balance sheet near term investment plans and our expectations for earnings we anticipate that we will continue returning excess capital to our shareholders. During the first quarter of 2022.
Very likely be a continued share repurchases.
Our analysis suggests that nucor shares are significantly undervalued relative to our risk profile earnings and cash flow generation capacity.
For 2022, we project capital spending of approximately $2 3 billion.
Growth projects for improved product capabilities and expansion represent about 75% of our expected capital spending for this year.
These include the Kentucky plate mill, the West Virginia sheet mill, the South Atlantic Rebar micro mill and gals since tubular products facility.
Maintenance capital spending for equipment replacement spares and cost savings projects accounts for the roughly.
25% remaining.
We currently expect capital expenditures over the next three years to total approximately $5 5 billion.
Turning to the outlook, we are confident that 2022 will be another year of strong profitability for nucor.
Fueled by continued strong end use market demand for a wide range of steel and steel products.
Better margins in our steel products segment is pricing has now caught up with higher steel input costs, and lower intercompany inventory revaluation expenses, reflecting bladder steel and raw material cost compared to 2021.
Focusing on the quarter, we expect consolidated net earnings attributable to Nucor shareholders will be slightly reduced from the fourth quarter of 2020 one's record results.
Diluted earnings per share for the first quarter of 2022 will benefit from lower weighted average shares outstanding.
Steel Mill segment earnings are expected to decline in the first quarter of 2022 due to decreased profitability of our sheet mills offsetting increased profitability at our long product mills.
The steel products segment is expected to achieve further margin expansion and profitability in the first quarter of 2022 as backlog pricing continues to improve.
The raw materials segment is expected to improve slightly in the first quarter.
Of 2022 as compared to the fourth quarter of 2021 due to the improved profitability of our derived facilities, partially offset by the impact of lower scrap prices on our scrap brokerage and processing operations.
Before we go to Q&A I would like to just take a moment to highlight our board's action to increase nucor's base dividend for the 49th consecutive year effected with the February 11th payment.
I Hope you will agree that this is an impressive track record.
Our team has great determination to continue our record of delivering increased long term value for our shareholders.
Thank you for your interest in Nucor, operator, we are now ready to take questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function is turned off July your signal to reach our equipment.
Ken that is star one to ask a question.
We will take our first question from Satish.
Casa Nathan with Deutsche Bank.
Yes, hi, good afternoon, congrats on a strong set of financial results as well as the safety record.
My first question is on the steel Mill segment, you mentioned that you expect earnings to decline due to the lower flat roll margins, but was just wondering if you could talk about the order entry rate and Genuity and how you see the volumes for the first quarter and also can you talk about.
The ramp up profile at Gallatin, and the total incremental volumes.
<unk> from demand for the current quarter as well as the full year.
Okay.
I'll start us off and maybe.
<unk> quarter EVP over our sheet grew can touch on the Gallatin expansion.
Number one to begin with as we mentioned in Jim's comments that we do expect primarily because of sheet pricing.
Our steel mills segment to be a little off in terms of profitability, but it is important to remember as well that's coming off a historic year and in particular, if we think about our sheet group and their performance the Chic group.
A record in terms of shipments at over 11 million tons generated over $6 billion and EBITDA performance and if you think about Nucor is 55% return on equity a large piece of that was attributable because of the <unk> group and so as we move forward.
<unk>.
The.
Short term inflection that we're seeing both in pricing as well as.
Some of the volumes that we think are a short term factors are based on imports obviously, what we saw in the third quarter in terms of buying patterns or the spread between HRC domestically and internationally was at a all time high.
Bob.
We had a the industry really catch up in terms of order entry rates and deliveries. So the supply chain got full very quickly and maybe some even some over buying.
And then couple that with the supply chain constraints labor constraints in the Omicron Varian raging all created for a little bit of a perfect storm here in the fourth quarter heading into the early part of 2022, but again the outlook and the demand picture across every end market that nucor serves.
<unk> very robust and again, we think this is going to work through the inventory rebalancing and position us well as we move forward.
And perhaps you can answer this if you'd like to.
It's going to have a capacity over the year.
Give us an incremental eight to 900000 tonnes.
The way the market is right now we're going to start off at a much slower pace in the first quarter and it's going to depend on market demand, we're not just going to make steel Unfortunately the marketplace.
You can't sell it at a reasonable price.
Yes, just some additional detail on geology.
As far as the outage, we had we're on target coming up.
The expectation as Jim mentioned, approximately 800000 tons additional for the year.
We'll measure that ramp up here in the first quarter with what we see on on demand. There is no need to ramp that up any quicker than we need.
All there is additional work to be done which is part of the plan. So in March we will commission to Eas LMS.
And the caster and by the end of March will be capable of full production.
At that point with wider strip and a thicker slab.
We're going to keep an eye on the market and.
Measure that ramp up as we see what market conditions are doing at Gallup.
Sure.
Okay. Thank you for the color and then my second question is on the steel products segment.
So you mentioned that you expect margin expansion in the first quarter, but can you talk about the size and duration of your backlog currently and provide a bit more color on how you see the margin profile through the remainder of the year.
You would see some strong tailwind from lower input cost. So just any color you can provide thank you.
Yes.
I'll kick us off and ask you to Mark our executive Vice President.
<unk>.
Some color in there, but if I think back to even in the height of the pandemic in 2020 that business segment remain incredibly robust that has continued and we see that continuing moving forward.
The commentary that we made towards the returns.
The strength that we anticipate in 2022 as the input cost level or come down the margin expansion, we will certainly continue in.
Well into 'twenty, two and so Chad wanted to add some.
Commentary behind some of that backlog, yes. Thank you Leon.
Leon mentioned.
<unk> talked about in the script.
Non res construction will remain very strong.
We entered 2022 and even beyond.
We continue to see solid seasonal adjusted quoting activity. So as we look across our broad portfolio of downstream products. So really solid quoting activity that's ongoing.
That was our backlogs that are very robust and in some cases, they are all time record backlogs.
So thats one data set that we look at the second and very important data set we looked at is what our customers are saying.
Our customers are overwhelmingly bullish on their 2022 demand.
I would ask that you remember our growth through the years and downstream steel products.
<unk> core to have a very good visibility into the demand.
Construction products, such as rebar fab.
The off highway.
Pre engineered metal buildings, racking steel tubing insulated panel joist and deck steel conduit.
So as we look and analyze.
Demand from this broad non res construction base.
We are very excited about what 2022 holes.
And as far as the margins in our backlog they are solid.
We believe that pricing is solid and we don't see many if any cancellations.
I'd also say that the strong backlog margins is not predicated on falling steel prices that could be coming at us. These are healthy margins due to the supply and the strong demand and balance that's out there.
Okay. Thank you congrats again.
Thank you.
Okay.
Our next question comes from Carlos de Alba with Morgan Stanley .
Yes, good morning, everyone, sorry, good afternoon, everyone.
Thanks for taking the question. So first you could comment as to how you see capacity utilization.
And you are different right.
Products, particularly in Q1, and maybe how you see the progression into Q2.
In the second half of the year, you do have visibility given your backlog.
Second question, if I may.
Given the $5 5 billion in Capex over the next three years I mean, some of that already.
I'm going to win that you are executed but.
How do you see the returns on these investments any any sense of the incremental EBITDA that you could generate from these projects that'll be great.
Yes, I'll start Carlos first regarding capacity Utilizations, we don't break those out typically in detail by business. If we think about overall volumes in the first quarter.
It's probably going to be slightly up because of the seasonality in the first quarter, she could be slightly down whereas other products. We would think it would more than offset them in general and we would see that.
Volumes would probably improve from that level in the second quarter, because there are winter factors.
Whether it's stuff that affect some of the shipments.
Also on credits affecting supply chains.
And maybe I'll make some comments about the year that are more global about what we're thinking about.
Regarding the economic impacts from Nucor.
Relative to Capex and benefits, we do periodically when we announce each project. We generally give some sort of when is the major project would give some sort of an EBITDA run rate. So I would go back and read our earnings releases that we've published about each of the major projects and see that data and.
We may at some point come out with something more formal where we repriced a number of projects that are coming nearing completion.
And given what the cumulative EBITDA benefit is but in my remarks, I talked about what we're seeing real time in 2021 and EBITDA from the projects that were recently.
Completed okay does that makes sense.
Yes that makes sense.
So first relative to the year as part of your question gets into what you expect for the year.
And I think Theres two important areas to think about what is what are earnings going to be and what was our free cash flow going to be and Thats. Those are the things that I think interest you most.
And it starts with end market demand, we've already touched on this end market demand.
Strong and it's the heart of it is non res construction biggest user steel.
But we're still not benefiting yet although we still know auto is still down because of chips chips and automotive ramp up till later this year and so we're going to see increased demand for model, we're not seeing the benefits from the infrastructure.
Coming so overall, we think about edge demand for steel will be up in 'twenty two over 'twenty, one and there are some important pieces that are not hitting us in the first quarter. This year that are still coming.
Turning point.
Secondly, you've touched on it obviously you've touched on this already we've got the largest downstream products businesses of any steel companies and.
They were getting margin squeezed for all of last year and pricing is finally, starting to catch up there's still businesses that have more room to go in terms of expanding their margins and getting prices cut it because of the size of what their backlogs of it and so we expect to see margin expansion in the first quarter and beyond for those businesses. So that's a positive.
Again, the next is going to be incremental benefits from the ramp of three major projects.
Galvanized line.
The Gallatin mill to the extent that there is enough sheet demand set to ship.
Some portion of that.
Tons of extra capacity, we will have for the year and then finally, the Kankakee merchant bar mill, we've been running parts of its capability, but not its full range yet so there's still some incremental capacity.
That we're not benefiting from that we will benefit from next year. So another positive for the years out.
And then.
Finally, intercompany eliminations last year.
Eliminations expense to revalue inventory to the cost to manufacture.
Total about $776 million.
And it's going to be a much smaller number next year, you'll be much closer to zero. So that it can be a significant benefit to our earnings results for the year. There are some headwinds for next year the biggest one being.
<unk> price correction.
That's really tied mainly to imports.
You think about the sheet market overall, our EBITDA for the year could approach the level, we achieved last year, because our EBIT to ramp dramatically from the first quarter of last year to the end of last year.
We made somewhere in the $285 per ton of EBITDA in the first quarter. We finished the year close to 800, we averaged $560 per ton.
<unk> last year, so she could still average at or above what they did last year based on what we're seeing today, we're not predicting that we don't know, but were saying thats within the range of possibility. That's the biggest question Mark in your forecast for the year is what sheet us logs plate beams.
They really should do a little better in 2022 overall needed in 'twenty, one because again, we started out with a weak first quarter for a lot of these businesses raw materials will be down year over year and that's because in 2021.
Material prices were rising we had inventory in the supply chain, where we captured value and so we made money and youre right because of low iron ore prices that we had on the ground and in our contracts we made money in scrap because we had scrap in our scrap yards. It was being priced higher every month and every quarter as prices were rising. So so the raw material segments will be a small tailwind.
So all headwind excuse me and depreciation and amortization is going to be higher last year's number was about $865 million. This year is going to be just north of $1 billion. So there'll be a small headwind. So if we translate that you could start with some earnings number when you filter through what assumptions you make around that you're going to be a pretty strong earnings number and we go to free cash flow.
Well working capital used $3 3 billion, a casualty issue I said that the script when we look at inventory receivables and payables net theyre not going to use that much cash to share effect it could be a small benefit that incremental free cash flow.
Capital spending is only going to be up in the neighborhood of $700 million based on what we see today.
And of course, we had a fairly robust M&A pipeline. We've got one project that we're going to be closing on soon and Thats. The CSI project bricks.
Not as big as the combined things, we did last year by and large and there could be other things coming we have capacity to do more when you think about our free cash flow next year.
Reduced our share count by 11% last year.
Two significant capital.
Turns of capital to investors through share repurchase.
We have noted in my comments that we're going to be doing some strong share repurchase in the first quarter. This could be another year of strong free cash flow.
Kind of a sizable amount of cash to our investors. So those would be our thoughts about.
How to think about the whole year from.
A big picture perspective.
Very good. Thank you very very good color good luck in the year.
Thank you. Thank you.
Our next question comes from Emily Chang with Goldman Sachs.
Good afternoon, gentlemen, congratulations on a strong update today.
My first question is just around the capital allocation I think Sharon that you've been able to execute thanks Kurt.
The significant capital return, how could we think about that going forward.
What does the next chapter of your growth strategy look like.
Yes Emily.
I'll start off and thanks for the question.
As we mentioned and we've talked previously our mission is very simple, let's say words, it's to grow the core expand beyond and live our culture. If we think about the core of our steelmaking capabilities. It's the expansion.
Regional and capabilities, it's not about adding capacity so the acquisition of CSI for us and having.
<unk> is a second partnership in California, and again majority shareholder in that operation is really exciting for us the announcement of our rebar micro mill to continue our market leadership position in rebar.
New mill in West, Virginia, and we are incredibly excited about because again it provides a long term differentiated value proposition for our customers that have been asking for it and need and if you think about the move in the time over the last.
24 to 36 months and what's going on in the world of ESG. The sustainability side of our industry is Paramount and again Nucor is incredibly well positioned as one of the cleanest steelmakers in the world to offer this feels like we just did the general motors. So that is going to continue you're going to see nucor continues to grow.
Our capability the second piece of that is the expanding beyond beyond the traditional balance of our steelmaking range in those <unk>.
<unk> like Hannibal industries and racking.
<unk> sentry and metal span to give us a market leadership position today in the insulated metal panels and this is all about the digital economy as we think about what's happening in warehousing data storage cold storage.
Booming industry that really is insulated from the traditional cyclicality steelmaking and so youre going to see Nucor continue to move and invest in projects, where we can combine our culture, our strong balance sheet and our investment strategy in deploying capital that will greatly exceed our cost of capital goals.
Two to return to our shareholders, Jim anything you'd add.
The only thing I would add Emily is that when we think about returning capital investors that portion of it it's going to start with 40% of our earnings and Thats going to be a pretty good number in the first quarter and.
But we do use an intrinsic value model that we showed the board every quarter. There is a very disciplined process. We published our net debt to capital range that we want to live and to maintain our strong investment grade credit rating.
1% to 22% we're below that right now.
So.
We would expect that.
We need to keep.
Investing and returning capital investors, both and we have the capacity to do both as we go forward.
Regarding growth as we are likely to have another announcement next week on our growth initiative. That's in the pipeline that's again to add capabilities.
Our product mix do you want to talk about that at all yes, just again stay tuned in the coming days, we will announce some as we think about our portfolio and are waiting, particularly around sheet moving up the value chain and expanding our offering in galvanized and painting.
Again in the coming days Youll see another announcement very well.
We're very excited about that will continue to move us in that direction and again, providing a.
Rounding out of that value added in our sheet products businesses.
Got it.
Very helpful.
My second question, just very quickly around the integration progress you've made at some of your recently acquired businesses.
Including have on A&P that give us a sense of how they train are trending relative to expectations today I'll leave it at that thank you.
Yes, Thanks, Anthony I'm going to turn this one to <unk>, our EVP of our sheet and tubular.
Hannibal industries, and then maybe Chad touched on our century and metal span.
Emily Thanks for the question.
<unk>.
Hannibal industries, our first.
Step into the racking side, obviously, we look for companies that are successful.
As our first approach.
For for Nucor Hannibal has been very successful, but also just a cultural fit in the first place so integration to US we look at that leadership.
Is it an existing company.
And.
We evaluate that as well and so that's what we found in animal they have couple of operations, California, Houston The leadership, we've had there.
Really just spectacular fit in well with our company.
We hired a are shifted a general manager existing general manager of Nucor over that business, but we're really pulling that group men to get them to understand new core <unk>.
Integrate and look at our production bonus system and how we incorporate that but it's very much Stephanie and learn as much about their business as well also commented on hand.
Hannibal and the racking.
<unk> leadership team and that includes the existing there and the ones. We've added from Nucor, they're tasked with growing that business. So we're already evaluating acquisition potential greenfield potential in the racking business. So we stepped into that business for the purpose of growing.
Growing up further geographically and expanding our capabilities there.
Yes.
Yes.
Very excited just like Rick said about animals, but especially in the E&P space and Leon mentioned.
That space I want to actually want to talk a little bit more about it but we're excited about the cornerstone IMT acquisition. The team that we now have.
The insulated metal panel space has been attracted to nucor for a long time and we were excited back in 2019 to purchases startup company called true core.
We are equally excited to welcome the cornerstone.
The team into new Cog.
We are working diligently through the integration and Onboarding process.
While we face some short term challenges with chemical supply.
A portion of inadequately priced backlog at the time of acquisition, we are still very excited about our future.
And again just why.
First of all there is significant growth I think Leon mentioned it earlier in this controlled environmental fulfilling.
E Commerce data centers food medicine.
Furthermore, building codes across the country for commercial and industrial buildings continue to be more stringent.
In insulated panels are one of the best solutions out there in the construction market to achieve those thermal requirements.
More and more companies as you guys know developers and owners see the value and are focusing on the E. In ESG and we've also watched the growth of <unk> in Europe and.
We believe the U S market, while currently about a $1 billion market for IMT, we believe that could grow in excess of $2 billion. So still onboarding still integrating at a few challenges to work through but excited about the future. Thank you Chad.
And clothes, and saying Hey, we welcome Neal.
Animal team in insulated metal panels team to the Nucor family and again excited about the opportunities in those businesses, we'll bring in the years to come.
Okay.
We will take our next question from Seth Rosenfeld with BNP Paribas Exane.
Okay.
Good afternoon, Thank you for taking our questions today.
I had two questions first from plate and then I'll follow up later on Green steel. Please.
On the plate market, obviously plate prices have been remarkably resilient last couple of weeks, even if she has fallen and accelerating rate can you just give us a bit of color on what youre seeing specifically supporting the plate market today whats unique in that supply demand balance how sustainable is that in the past, we've seen a pretty tight relationship between plate and how long.
Do you think that could break out right now or is there a reason to be more concerned looking into the middle of the year for plate.
I'll start there please.
Yeah, Great question, Steph I'm going to kick that tap out there our EVP over a plate and structural group out.
Thanks, Jeff I appreciate the question.
I don't know that I would add a lot more than what we've talked about is a consistent drumbeat around demand and pricing for our product is always driven by demand and what we see in the plate market I'd highlight three key markets for US one is nonresidential construction and we've talked about that.
A bit our visibility into that market is extremely good and the demand picture is very strong.
Other key market would be heavy equipment and industrial equipment that market is very strong right now if there is any.
Indication of weakness around supply chain and not true consumption and demand.
The Oems.
The final market I would highlight would be energy broadly energy, which includes renewables as well as oil and gas oil and gas has been a bit weaker in the last couple of years and that with oil prices today is growing by the day. So that really is what it comes down to Seth It's just a very solid demand picture.
Our crystal ball gets pretty fuzzy when we look out very much past the next month or so we don't know what the rest of the year will bring but we are optimistic about the plate market. The demand in key markets is very good.
<unk>.
We instituted a published price.
In August of 2020, and Thats, a relevant price we're committed to keeping that is irrelevant prices transactional base.
And as we need to move that according to the supply and demand market in the markets. We will do that but what direction that may go is just tough for us to tell other than the demand is good.
We are encouraged.
Okay. Thank you very much.
Separate question. Please on iconic for the Green Steel brand first congrats on your first delivery to GM can you give us a bit more color on the scale of volume growth you think could be achievable say in the next one to two years.
And then on the pricing side absolute demand that's growing very rapidly right now supply is very tight what degree of pricing power, we're able to achieve compared to any cost escalation, perhaps as you just raw materials mix of power supply.
<unk>.
Yes, Thanks, Seth and we're excited about iconic again this.
Again more recent transformation over the last 234 years and moving into a much more sustainable place and of course again I think that ahead of the curve we've done things that many in our industry if not we've got.
Two virtual power purchase agreements today.
Because of our balance sheet allow us to be able to do those things, we're starting out with a carbon intensity that is.
Three or four times lower than some of our integrated competitors. So we begin from a platform of great strength and again, a commitment to be even stronger than they were even cleaner. So we've announced a 35% reduction target by 2030 that will bring us to about 1.3738.
Tons of Cotwo per ton of steel produced which again and the world numbers is incredibly low so it enables nucor to offer what we did to general Motors a few weeks ago in the first.
Coil of net zero steel to their to their factory.
That being said what I would tell you again to just over two years I've been CEO that demand picture is changing markedly literally day to day. So it's not just the major Oems in automotive now that are asking for it we're seeing.
Many of our construction many of our OEM partners outside of automotive that are beginning to ask for this and so I'm not going to detail out what the value is I would tell you that value increases as.
As we move forward because many of our end customers cannot achieve there and stated goals of their carbon footprint reduction targets without an incoming steel that is significantly lower than most of the world averages. So.
What I would tell you is theres value there today make no mistake that value will continue to increase and we'll see how that.
How that moves through over the next 810 12.
24 months in terms of the amount of steel that nucor participates in and how fast we escalate that but we kind of control that we have the opportunity.
To continue to enhance that and do what's required to meet that demand.
Demand picture.
Okay. Thank you very much.
Thank you Seth.
Sure.
Our next question comes from Timna Tanners with Wolfe Research.
Yes.
Hey, great.
Doing well.
Wanted to ask a bit about your visibility into the first quarter now that lead times are a lot shorter can you talk a little bit about.
How good your visibility is for seed in particular and.
What what Youre looking for in order to ramp up Gallatin like what conditions is it demand is it price or both.
Yes, maybe I'll start and maybe if you want to add some color look I think with the Gallatin expansion as Jim mentioned and possibly Rex we're going to be disciplined in that ramp up at the same time balancing out we've just invested a lot of money. So we wanted to make sure that equipment is ready and available as we progress out so that team is.
Working feverishly to bring its capability to where we need at the same time.
I would tell you over the last 12 months to 18 months, particularly as we move through the last contract season Nucor has been.
Very disciplined about our approach into the marketplace and how we want to transact. So as Jim mentioned, a few minutes ago, we're not going to flood the market just because we want to produce the scale out of Gallatin, we're going to have a very measured.
Approach in a very deliberate approach into the marketplace.
So I expect that we're going to scale up.
As we've mentioned throughout the call we used to track and share I think the numbers of end markets and we track.
Actually every end market that you can imagine enough all of the end markets. We look at virtually every one of them is projected to grow in fact are our estimated growth for full year 2022, it's about 6% in terms of overall shipment increase so we see that as an opportunity.
And again, we expect Gallatin to continue to ramp up in May.
<unk> made its objectives and hit the nameplate investment, which is about $1 4 million tons of additional capacity, but any other color you'd like to share in terms of that ramp up yes.
Thanks for the question regarding visibility.
We have good visibility on it.
Talk with our customers.
Weekly.
And.
With the correction that we're seeing right now on the sheet side with.
With what you're seeing some of the pricing.
What led up to that is.
As we entered 2020 with Covid.
<unk> started to contract and shut down in 2021.
The recovery so to speak from that standpoint, So you saw demand increase.
Suitably pricing runoff, that's an opportunity is that demand is increasing for some import.
To come in and that's what we've seen as we come in late in the year and we see some of that correction occurring but the thing we keep hearing right. Now is this is a <unk>.
Short term temporal correction.
And the underlying demand much like al mentioned in those sectors. Those were key sectors of the automotive sector that Jim Frias mentioned as well what we hear from our customers as they do expect 2022 overall.
To be a fairly strong year from demand. So that's what we hear from our customers we see this.
Temporal correction and as Lee just stated about Gallatin, it's really an opportunity as we are getting some work done there.
That team has been in construction mode for quite some time now.
So we're able to ramp that up as we see fit and so what we'd be looking for we're going to be looking for that demand.
It's not a price standpoint, just the demand we're going to make sure we take care of and service our customers.
Tim the one thing I would add to that.
Keep in mind, we're a bit more hot band centric than some of our competitors and that's where most of the imports that come in.
And as you look at what we've done over the past few years, we've been adding galvanizing lines were wrapping went up.
Arkansas right now we started went up at <unk> and the year before that we've got one in Mexico now that is consuming substrate that part of the subsidiary comes out of our Berkeley Mill.
We're getting ready to announce another guidelines soon so we recognize that that's a part of our portfolio that would perform better for quite so weighted to hot band. So we expect to keep.
<unk>.
Doing things to try to deal with that but thats one of the reasons why we are being impacted the way. We are as are our reliance on the hot band market.
That makes sense. Thanks, and my other question was just on contacts into 2022, I know that there was a lot of chatter about moving to shrink the discounts against C are you in in the.
<unk> helped us understand nucor's breakdown of contract business and how to think about it I was wondering if you could update us on how those contract negotiations went now that they're over and any changes in your exposure to automotive please.
Yes, maybe I'll start with the automotive and then you can update on the contracts.
For a long time, we've been in that 151 6 million ton a year range in the automotive side, our expectation and our stated goals are to double that to around 3 million tons and so what I would tell you in a year that was way off because of the chip shortages in 2021.
Somewhere in that 12 513 million units Nucor, Sharon automotive grew and that is going to continue to grow and so I can tell you. There's a lot of excitement about new course capabilities, bringing the first half to be able to produce a full generation three steel and hickman as well as what the opportunity and capability of the West Virginia sheet mill.
<unk> be able to do in terms of transforming a differentiated clean steel net zero steel into the Oems and so we're we're committed to move there at the same time.
Our goals are not to get overly weighted we're not looking to move to 20 or 25% of our overall mix in automotive, but two.
To be in that 10% to 12% range I think is probably about the right number today or actually I want to touch on contracts.
I'll finish up on the Hickman Gal line.
Just pleased with whats occurred there the start up of that.
And automotive capable and focused.
Golf line with.
The additional ore or the extra high strength. So we will be able to feed into that so that's a step for sure into that and the new Midwest mill as Leon mentioned.
Automotive is going to be a significant portion of what we look for in that business.
For that so you will see that growth occurring on the contract side.
We are.
Contract season, I wouldn't say it was.
What we expected we had going into it some strength in the marketplace from a demand standpoint.
So the thanks from.
Speaker 1: of those things, but it worked.
Great extra as some of those things but.
Yeah.
Speaker 1: discuss with our customers, but at the same time, you've got to look at the total package, if you will, of what they see as value. So, it's more than just what those pieces are. It's price, but it's delivery, it's service. So, our contract season for us, we finish...
<unk> discussed with our customers, but at the same time, you've got to look at the total.
<unk> package, if you will of what they see as value. So its more than just what those pieces are it's price, but its delivery service. So our contract season for US we finished.
Speaker 1: Very typical with what we target for contract percents both on the service center side as well as overall
Very typical with what we target for contract for SaaS, both on the service center side as well as overall so we're in the 80% range and an overall target for us so fairly typical from a volume standpoint.
Speaker 1: So we're in the 80% range and overall target for us. So fairly typical from a volume standpoint.
Speaker 1: as we finish up contract season for heading into 2022. And we have very few customers that have chosen not to renew, isn't that correct? Yeah, and in fact, I would tell you we had more requests for increased volume. So I've seen some of the information of not wanting to enter contracts, those types of things. We did not experience that.
As we finish up contract season four.
Heading into 2022, and we had very few customers that chose not to renew as Nick correct. Yes. In fact, I would tell you we had more request for increased volume. So I've seen some of the information of.
Not wanting either contracts those types of things we did not experience that is.
Speaker 1: as a company. In fact, it was the other way around. We've performed in a really tight market for our customers and we had the interest in renewing contracts. That's what we saw for this season.
As a company in fact that was the other way around we performed at a really tight market for our customers and we have the interest in renewing contracts.
That's what we saw for this season.
Okay. Thanks, guys.
Thanks.
Speaker 2: And our next question comes from Michael Glick with J.P. Morgan. Hey, a couple of questions on the market. You mentioned your hot band exposure, and right now we're looking at historically wide spreads between hot rolled and value-added products. Do you expect that spread to contract back to where it has been historically, or do you think there's something chemical going on?
And our next question comes from Michael Glick with J P. Morgan.
Sure.
Hey couple of questions on the market you mentioned your heartburn exposure and right now we're looking at historically wide spreads between hot rolled and value added products.
Do you expect that spread to contract back to where it has been historically or do you think there is something going on.
Those spreads wider than we've seen historically.
Speaker 2: When you say value-added products, what are you referring to? Cold-rolled and coated products.
When you say value added products, what are you, referring to a cold rolled and coated products.
Got it.
Speaker 3: Yeah, well, Michael, I would tell you, I think the overall trend is you're going to see that that gap shrink, you know, we saw obviously a huge spike of imports coming in mainly from Canada and Mexico, predominantly hot band.
Yes.
Mike.
I would tell you I think the overall trend is youre going to see that gap shrink. We saw let me say a huge spike of imports coming in mainly from Canada and Mexico.
Predominantly hot band.
Speaker 3: you know, is what we saw with CRU's numbers out yesterday. Those numbers are correcting. And so I think you're going to see a, a, a, a.
What we saw with Cru's numbers out yesterday, those numbers are correcting and so I think youre going to see a.
Speaker 3: a closer level set to norm. But what's norm, right? Coming off a historic year like we had in 21, I think there's three things that Nucor's touched on over the really the last year. If you look at our industry over the last 12 or 18 to 24 months.
A closer level set to norm, but what's norm, Brian coming off a historic year like we had in 'twenty one.
I think there's three things that nucor's touched on over really the last year. If you look at our industry over the last 12.
18 to 24 months.
Speaker 3: There's been significant shifts in consolidation, rationalization, and trade.
Ben significant shifts in consolidation rationalization and trade. If you think about just five years six years ago. We had about 55 cases that were won in carbon steel today, that's over 110 and trade cases different but obviously the door opened up with.
Speaker 3: If you think about just five years, six years ago, we had about 55 cases that were won in carbon steel. Today, that's over.
Speaker 3: Trade case is different, but obviously the door opened up with.
Speaker 3: the massive spread. So while I think there's some correction, I also think the industry has moved as well as New Quarter in terms of creating higher highs and higher lows that will continue to move forward. In terms of the overall, where that ends up, I'm not gonna speculate. I would tell you that, you know, with a healthy functioning market, it's gonna find its equilibrium. And at the end of the day, supply and demand will always be the drivers to how we price our product.
<unk>.
The massive spread so while.
I think there is some correction I also think the industry has moved as well as new quarter in terms of creating higher highs and higher lows that we will continue to move forward.
In terms of the overall, where that ends up I'm not going to speculate I would tell you that the healthy functioning market.
You can find its equilibrium and at the end of the day supply and demand will always be the drivers to how we price our products.
Speaker 4: And then my second question will also be just kind of bigger picture, you know, the focus on potential capacity curtailments has been on the blast furnace side, but I presume technology on the AF side has improved pretty considerably since the
And then my second question also be just kind of bigger picture Theres focus on potential capacity curtailments has been on the blast furnace side, but I presume technology on.
Side has improved pretty considerably since the late 19 aes.
Speaker 4: I mean, do you see any industry EAF flat rolled mills nearing the end of their, you know, relative useful lives given the dilutive impacts on portfolio returns in an era of higher scrap and
I mean do you see any industry flat rolled mills nearing the end of their.
Relative useful lives given the dilutive impacts on portfolio returns.
Higher scrap and labor costs, and a fleet of new mills coming on.
Speaker 3: You know, look, I can only speak to Nucor and I would just tell you Nucor has had a long history, like five and a half decades worth, of reinvesting back into our mills so that as those mills generate the returns and they even on the margins.
Look I can only speak to nucor.
I would just tell you nucor's had a long history.
$5 five decades worth of reinvesting back into our mills, so that as those mill to generate the returns and the EBITDA and the margins we make sure we reinvest for the long term and all of those assets. So.
Speaker 3: we make sure we reinvest for the long term in all of those assets. So, you know, the modernization at our acquisition of the Marion facility, our investment in Kankakee, our investments across the entire product portfolio has been.
The modernization net.
Our acquisition of the Marion facility, our investment in Kankakee, our investments in <unk>.
Across the entire product portfolio has been significant in the billions and billions range and so.
Speaker 3: significant uh... in the billions and billions range and so
Speaker 3: From a new core perspective, I would tell you not at all Are some of our oldest mills are the highest generating returns that we have in our entire portfolio and it's because we do a great job of reinvesting our teams do an amazing job of keeping the maintenance and upkeep and Staying on the latest trends for the improvements in technology to
From a new core perspective, I would tell you not at all.
Some of our oldest mills or the highest generating returns that we have in our entire portfolio and it's because we do a great job of reinvesting our teams do an amazing job of keeping the maintenance and upkeep and staying on the latest transfer the improvements.
And technology to implement to ensure not only the safest delivery of that steel, but also the lowest cost output to those steel products for our customers.
Speaker 3: to ensure not only the safest delivery of that steel, but also the lowest cost output to those steel products for our customers.
Got it thank you.
Okay. Thank you Michael.
Speaker 5: And that concludes today's question and answer session. At this time, I will turn the conference back to Mr. Leon Topalian for any additional or closing remarks.
And that concludes today's question and answer session. At this time I will turn the conference back to Mr. Leon Topalian for any additional or closing remarks.
Speaker 3: Thank you. As we conclude our call today, I just want to thank the entire Nucor family for delivering the safest year in our history and the most profitable year in our history. Thank you, and I look forward to continuing the exceptional performance across all of our businesses in 2022.
Thank you as we conclude our call today I just want to thank the entire nucor family for delivering the safest year in our history and the most profitable year in our history and I look forward to continuing the exceptional performance across all of our businesses in 2022 to our customers. Thank you for the trust in the partnership.
Speaker 3: To our customers, thank you for the trust and the partnership as we continue to build the capabilities required to differentiate Nucor as the supplier of choice.
Continue to build the capabilities required to differentiate nucor as the supplier of choice and finally to our shareholders. We're proud of the record returns provided in 2021. However, we're not resting on our past performance. The Nucor team is focused on maximizing our profitability and continuing to be great stewards of the valuable shareholder capital.
Speaker 3: And finally, to our shareholders, we're proud of the record returns provided in 2021. However, we're not resting on our past performance. The NewCorp team is focused on maximizing our profitability and continuing to be great stewards of the valuable shareholder capital you entrust us with. Thank you and have a great day.
You entrust us with thank you and have a great day.
Speaker 6: And that does conclude today's conference. We thank you for your participation. You may now disconnect. Thank you for joining us. Thank you. Thank you.
And that does conclude today's conference. We thank you for your participation you may now disconnect.
[music].